US-based businesses operating in China are anticipating an all-time low in investments this calendar year combined with a downturn in confidence in their potential for profit. This comes amidst uncertainties surrounding US-China relations coupled with the effect of tariffs imposed by ex-president Donald Trump causing significant concern. Furthermore, challenges are being further catalyzed by the decelerating pace of China’s economic growth, as fragile domestic demand paired with an oversupply in local industries takes a toll on the profitability of American firms.
Business ventures in the region are experiencing a decline in their profitability compared to previous years, accompanied by an escalation in varying risks including those of reputation, regulation, and politics. A poll executed between the months of March and May, in which responses were accumulated from 130 associated companies, was published during the height of tensions over tariffs and additional trade measures comprising restrictions on exported goods such as critical rare-earth magnets and leading-edge computer technology.
In pursuant negotiations held in London and Geneva, officials from China and the US have come to an agreement to scale back from unrestrained tariffs and export restrictions. Yet, the situation remains fraught with uncertainty as the establishment of a more enduring trade understanding is yet in the process of being worked out. The survey expressed that more than half of the participating firms indicated a lack of new investment strategies in China for the current year.
A significant portion, 40 percent of companies, reported experiencing adverse effects due to American export control measures. These encompassed a range of hardships including the loss of sales, severed customer relations, and harm to their reputations as suppliers could not maintain reliability. The US administration has cited national security as the reason behind the ban on exporting high-tech products, inclusive of top-tier chips to China. These could arguably enhance China’s military abilities if made available.
It is imperative to target export controls with precision to avoid creating opportunities for businesses from areas such as Europe and Japan or local Chinese operations to occupy any gaps left by US firms. An example of this is the recent green light given by the US to Silicon Valley’s Nvidia to resume the sale of its sophisticated H20 chips to China for the advancement of artificial intelligence applications. However, the firm’s highest performing chips continue to remain under the US export control regulations.
Survey results reflect that while 82 percent of US firms had been profitable in 2024, less than half remain hopeful regarding their prospects in China. This sentiment is driven by preoccupations involving tariffs, deflation, and policy-related uncertainties. Additionally, the desire to transfer their operations out of China is currently at an all-time high within American firms. Twenty-seven percent of surveyed member firms have such plans, which marks an increase from nineteen percent in the preceding year.
In contrast to previous surveys, anxieties relating to China’s regulatory atmosphere, including the possibilities of intellectual property misuse and access issues to the local market, did not feature amongst the top five concerns this year. However, nearly all American companies expressed the indispensability of their Chinese operations for maintaining their competitive edge on the global market stage.
In other surveys, the European Union’s Chamber of Commerce in China discovered in May that European companies were resorting to cost-cutting measures in response to slowing economic growth and intense competition causing prices to drop. These businesses were also delineating a retrenchment in their investment planning for China